It could be the end of an era as the battle for Australian skies moves into the next phase now that Qantas has capitulated on its “65% market share” line in the sand.
The AFR reports that Qantas CEO Alan Joyce is expecting average airfares will rise now that capacity will stop growing faster than the 4-5% growth in demand each year. Joyce said that the increase in capacity over demand has had a negative impact on Qantas yields.
“It is very clear that the capacity situation in the domestic market has hit everybody’s profitability,” Joyce said.
Which is why Qantas recently announced it will freeze domestic capacity next year and no doubt why Virgin did the same earlier this year.
It is clear that having played a high stakes game for a government guarantee earlier this financial year and having come away empty-handed, Qantas is looking at grinding its way back to financial health under its own steam.
Layoffs, which will cut operating costs, are well-known. The capacity freeze will aid profitability by eventually increasing yields and Qantas is also becoming increasingly active in the corporate bond market having issued $300 million in debt last month. Demand was so high that news broke yesterday Qantas was back in the market with another $100 seven-year issue.
Clearly Qantas is serious in rebuilding its balance sheet and profitability. That’s good news for the company but it signals an end to the extremely cheap fares many Australian have become used to.
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